10

BUSN

Securities Markets: Trading Financial Resources

2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

10

Securities Markets:
Trading Financial Resources

What are the different types of securities issued by a

corporation?
How are securities issued in the primary market and
traded in the secondary market?
How do the government and private organizations
regulate securities markets?
What are the different types of investment strategies
that investors follow?
What are the appeals of mutual funds and exchange
traded funds?
How can investors track the performance of their
investments?

BUSN

2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in
part.

10

Securities Markets: Trading Financial Resources

Basic Types of Financial Securities

Three major types of securities that

are traded in markets:
Common Stock
Preferred Stock
Bonds

BUSN

2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

10

Securities Markets: Trading Financial Resources

Common Stock: Basic Ownership

The basic form of ownership in a corporation

Voting Rights
Right to Dividends
Capital Gains
Preemptive Rights
Right to Residual
Claim on Assets

BUSN

2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

10

Securities Markets: Trading Financial Resources

Preferred Stock: Getting Preferential Treatment

Stock that gives its holder preference over common

stockholders

BUSN

No Voting Rights
Claim on Assets
Payment of Dividends
Cumulative Feature

2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

10

Securities Markets: Trading Financial Resources

Bonds: Earning Your Interest

Long-term debt issued by a corporation or government

Maturity Date
Par Value
Premium
Discount
Coupon Rate
Current Yield
Bonds are a legal obligation

BUSN

2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

10

Securities Markets: Trading Financial Resources

Could Your Best Investment Be a Piece of Junk?

Junk bonds are bonds issued by companies with poor

credit ratings.
Junk bonds offer a higher rate of interest (and risk).
In 2007, only 22 companies in the world defaulted in
their bonds.
During the recession in 2008, the number soared to 126.

In late 2008, investing in junk bonds became a hot

strategy.

BUSN

2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

10

Securities Markets: Trading Financial Resources

Methods of Retiring Bonds

Most bonds are secured with a pledge of specific

assets.
Methods of retiring bonds:
Serial bonds have unique maturity dates and help spread
out repayments.
Companies may establish a sinking fund to assist in
repayment. Sinking funds allows the issuer to buy back
bonds each year.

Callable bonds have provisions for early redemption.

Convertible bonds allow bonds to be transferred into
shares of common stock.
BUSN

2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

10

Securities Markets: Trading Financial Resources

Trading Securities: The Primary Market

Public Offering:
Private Placement:
Initial Public Offering
Quicker, simpler, less
(IPO)
expensive
Select an Investment
Investment bank
bank (underwriter)
assistance
Prepare paperwork
No SEC registration
Arrange for financing
Only available to
accredited investors
Carry out the offer

BUSN

2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

10

Securities Markets: Trading Financial Resources

Trading Securities: The Secondary Market

Security Exchanges
New York Stock Exchange
Traditionally an auction market
NASDAQ
Electronic exchange

Two largest
exchanges in
the United
States

Over the Counter Market

Electronic Communication Networks
BUSN

2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

10

10

BUSN

Securities Markets: Trading Financial Resources

Major Global Stock Exchanges

2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

11

10

Securities Markets: Trading Financial Resources

Big Changes at the NYSE

NYSE Hybrid Market - a new trading system

to allow investors to execute trading through an
automated trading system called NYSE Direct+
The Hybrid Market changed more in 2008
NYSE replaced its specialists with designated market
makers (DMMs) who have more freedom to participate in
the market for specific stocks.

BUSN

2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

12

10

Securities Markets: Trading Financial Resources

The Over-the-Counter Market (OTC)

Small corporations or those without satisfactory

business performance are listed on the OTC.
Some corporations choose OTC to avoid listing
fees and charges.
The market for most OTC is much less active
than stocks listed on the major exchanges.

BUSN

2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

13

10

Securities Markets: Trading Financial Resources

Penny Stocks:
Finding Something Pretty in the Pinks?

1,000 shares of stock for under a hundred bucks!

Penny stocks are low-priced speculative stocks issued by
small corporations.
They are not traded on major exchanges
Listed on online services called Pink Sheets
Investing in penny stocks is risky
The companies lack the resources to survive setbacks
Limited reliable information
Little SEC oversight
The market is not active it make be hard to find buyers if
you want out
BUSN

2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

14

10

Securities Markets: Trading Financial Resources

Electronic Communications Networks

A new completely computer-based securities market

ECNs automatically match buyers and sellers
Investors can trade after hours
Both NYSE and NASDAQ have bought into ECNs

BUSN

2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

15

10

Securities Markets: Trading Financial Resources

Regulation of Securities Markets:

Establishing Confidence in the Market

State Regulations
Federal Legislation
Securities Act 1933
Require firms to file registration when issuing stock

Securities Exchange Act of 1934

Securities and Exchange Commission

Established report filing
Registration of brokers and dealers
Prosecution power
Individual and Company Fraudulent Activity
(i.e. insider trading)

BUSN

2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

16

10

Securities Markets: Trading Financial Resources

Symbolic Logic: Do You LUV this HOGs DNA?

Every publicly traded corporation is identified by a

unique combination of letters known as stock symbols.
Can you Guess These?

BUSN

GOOG

HOG

Google

Harley-Davidson

MMM

DNA

3M

Genentech

JAVA

LUV

Sun Microsystems

Southwest Airlines

2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

17

10

Securities Markets: Trading Financial Resources

Personal Investing

What are your short-term and long-term goals?

Given your budget, how much are you able to
invest?
How long can you leave your money invested?
How concerned are you about the tax
implications of your investments?
How much tolerance do you have for risk?
DIVERSIFICATION

BUSN

2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

18

10

Securities Markets: Trading Financial Resources

Choosing a Broker: Access to the Markets

Individuals must use a broker

to trade stocks on the organized
exchanges and OTC market.
Full Service Brokers
Provide a range of services
Discount Brokers
Basic buy/sell capabilities
The competition between
brokers is intense and both
attempt to offer more services.

BUSN

2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

19

10

Securities Markets: Trading Financial Resources

Buying Securities: Lets Make a Deal

Market Orders
buy or sell a security
at the current
Limit Orders
market price
place limits on the price
at which orders
are executed

BUSN

2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

20

10

Securities Markets: Trading Financial Resources

Strategies for Investing in Securities

Investing for Income

Market Timing
Value Investing
Investing for Growth
Buying and Holding

BUSN

2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

21

10

Securities Markets: Trading Financial Resources

How Do You like Them Apples?

In the first years of the iPod, Apples stock went to the

moon
Shares rose 1600% between 2003 and 2007
Many investors missed outthey had bailed on Apple
at the turn of the century
The fast rise of the stock even shocked Apple insiders
Steve Jobs, the company CEO, had renegotiated his stock
options
Although his stock was worth over a billion dollars in mid2007, they would have been worth over $5 billion
BUSN

2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

22

10

Securities Markets: Trading Financial Resources

Other Investment Options:

Mutual Funds and Exchange Traded Funds

Exchange Traded Funds

Mutual Funds

Diversification
Professional Management
Variety
Liquidity

Features of stocks and a

mutual fund
Purchasing ownership in a
market basket of stocks
You can buy and sell ETFs
any time of the day, unlike
Mutual Funds
23

BUSN

2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

10

Securities Markets: Trading Financial Resources

Does Green Investing Earn Green Returns?

The New Alternatives Fund which was established in

1982 selected stocks based on environmental
considerations.
The number of green funds has grown
Over the long haul, these funds are making money
The Winslow Green Growth Fund has an annual
return of 8.45%

BUSN

2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

24

10

Securities Markets: Trading Financial Resources

Stock Indices: Tracking the Trends

Stock Index :
Tracks how the prices of
a specific set of stocks
have changed

Standard and Poors 500:

Tracks 500 stocks and
weighs the total market
value of each stock

Dow Jones Industrial Average (DJIA) most widely

followed index. Tracks 30 stocks picked by the Wall
Street Journal editors.

BUSN

2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

25

10

BUSN

Securities Markets: Trading Financial Resources

Major Stock Price Indices

2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

26

10

Securities Markets: Trading Financial Resources

Tracking the Performance of Specific Securities

Source: Yahoo! Finance stock quote accessed April 2, 2009. Reproduced with
permission of Yahoo! Inc. YAHOO! and the YAHOO! logo are registered
trademarks of Yahoo! Inc.

Source: Yahoo! Finance stock quote accessed April 2, 2009. Reproduced with permission of Yahoo!
Inc. YAHOO! and the YAHOO! logo are registered trademarks of Yahoo! Inc.

BUSN

2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

27

10

Looking Back

What are the different types of securities issued by a

corporation?
How are securities issued in the primary market and
traded in the secondary market?
How do the government and private organizations
regulate securities markets?
What are the different types of investment strategies
that investors follow?
What are the appeals of mutual funds and exchange
traded funds?
How can investors track the performance of their
investments?
BUSN

2011 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in
part.

28